Goldman Fined for Failing to Block Trader’s $8.3 Billion Bet

Goldman Sachs Group Inc. (GS) will pay
$1.5 million to settle U.S. Commodity Futures Trading Commission
claims the firm failed to supervise a trader who hid an $8.3
billion position. One CFTC commissioner dissented, saying the
penalty is far too small.

Goldman Sachs inadequately policed trades made by Matthew
Marshall Taylor on seven days in late 2007, ultimately suffering
more than $118 million in losses as his bets were unwound,
according to the CFTC. Later, Goldman Sachs didn’t send the
regulator “important information” on the incident that was
provided to another industry watchdog, the CFTC said.

“Given the egregious nature of the failure to supervise
adequately, combined with the high number of violative
transactions, I believe that the monetary penalty should be
significantly higher,” Bart Chilton, one of three Democrats at
the CFTC, wrote in a dissent posted on the regulator’s website.
Fines should represent more than a “slap on the wrist,” he
said.

Taylor concealed the position by bypassing the New York-
based firm’s internal system for routing trades to the Chicago
Mercantile Exchange and manually entering fabricated futures
trades in a different internal system, the CFTC wrote in a
complaint filed against him at federal court last month. His
attorney disputed those allegations at the time.

In settling with the CFTC, Goldman promised to bolster
internal systems and cooperate with claims against Taylor.

‘False Explanations’

“Taylor’s activity was flagged by our controls” in
December of 2007, Goldman Sachs said in a statement. “After
initially providing false explanations during the trading day,
Taylor admitted his conduct following market close and was
subsequently terminated. Since these events, we have enhanced
our controls.”

Taylor’s attorney said last month the trader never
intentionally used bogus transactions to hide positions and that
the bank didn’t claim otherwise when he was terminated.

“Matt, himself, brought the trading losses to the
attention of senior managers at Goldman on the day they
occurred,” said the lawyer, Ross Intelisano of Rich, Intelisano
& Katz LLP.

The case is U.S. Commodity Futures Trading Commission v.
Taylor, 12-cv-8170, U.S. District Court, Southern District of
New York (Manhattan).